War is the twilight of illusions, and the Russian invasion of Ukraine and the threat it poses to Europe is marking the end of one of the most powerful and durable phantasy in recent history: the idea that we were bound to live in a stable global order where the market would take care of most of our problems. The traumatic turbulence of the early 2020s confronts us with problems that evidently the market cannot solve and which require heavy state intervention. From the question of European defence vis-a-vis the threat posed by Putin, to the urgency to rid the continent dependency on Russian gas and oil, state interventionism abandoned in the West over the course of the neoliberal era is making a strong return. We are entering an era which the neoliberalism of free markets is being replaced by neo-statism, a widespread acceptance of heavy state intervention at all levels of our society and the economy, as a means to guarantee protection and security vis-a-vis dangers.
 
This shift in public perceptions and policy attitudes long predates this international crisis. It has already been fuelled by evidence of the failure of austerity policies over the 2010s. Shrinking public spending only resulted in economic stagnation and impoverishment of working and middle classes, fuelling support for right-wing populist movements, many of them allied with and bankrolled by Vladimir Putin. That dogmatic adherence to fiscal conservatism has endangered our democracy has eventually been recognised by some liberals. Biden's economic agenda was by and large designed to pacify the economic discontent that has allowed Trump to win over vast sections of the working class. But it is stalled in Congress due to resistance of figures such as Joe Manchin an Kyrsten Sinema and the lobbies they represent.
 

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The Covid pandemic has only reinforced this shift in public attitudes. In a famous letter to the Financial Times in March 2020, former ECB chair and current Italian prime minister Mario Draghi had already argued that the Covid pandemic confronted states with a situation similar to a war economy, in which budgetary restrictions adopted over the course of the 2010s should be lifted. He said that "it is the proper role of the state to deploy its balance sheet to protect citizens and the economy against shocks that the private sector is not responsible for and cannot absorb". More recently, his main economic advisor Francesco Giavazzi even claimed that "Debt is a concept from the last century". The emergency of climate change and the goal of the green transition have led governments to massive public investment in renewable energy, energy efficiency and transportation infrastructure. With the war raging at Europe’s borders this departure from fiscal conservatism is bound to become even more pronounced.
 
In Germany, the finance minister of the FPD Christian Lindner, a staunch fiscal hawk, announced extraordinary defense spending to the tune of 100 billion euros. He lambasted CDU leader Friedrich Merz who warned that military spending would increase public debt, by arguing that the security situation means that there will be "no more business as usual", and that the situation called for an "investment in our freedom" Many European countries are already making similar spending pledges, while discussion about common defence policy within the European Union is seeing an acceleration, amid the awareness that the continent cannot anymore rely on US protection alone. Thus, the recuperation of Keynesian investment policies, already implicit in the EU recovery plan is only bound to accelerate. 

But state interventionism is now called at many other levels. One of the reasons for European vulnerability has to do with its huge energy dependence on Russia, which provides 40% of natural gas and 25% of crude oil, with Angela Merkel’s energy policy partly blamed for this. In spite of economic sanctions, European countries continue to bankroll the government of Vladimir Putin, at the tune of hundreds of million euros a day for energy imports. Continental policy-makers will be forced to redouble their commitments to energy transition. 

The REpowerEU plan launched on March 8 aims at reducing European dependency on Russian gas by two thirds by the end of 2022 and ditching it entirely well before 2030. This will be a mammoth task, require huge investments in renewable energy, covering wind and photovoltaic energy, and energy efficiency. Further there are plans for new liquified natural gas terminals, that will receive the 15 billion cubic metres of gas the US has promised to wean off the continent from Russian energy. As of yet it is unclear how these huge investments will be paid for. But if EU states are serious about these plans they will have to trash the last vestiges of austerity thinking.

 
 
More generally, it has become crystal-clear in this crisis that some of the tenets of globalisation (open markets, free capital flows, unregulated tax havens and elongate supply chains) have become untenable. On global trade, we are likely to be heading towards a Balkanised global economic system, in which different powers will try to defend more jealously their sphere of influence and their captive markets. If decoupling and reshoring were derided by some as anachronistic returns to autarky, a future of renationalization and regionalization of industry and trade is now a reality acknowledged also by Wall Street firms. 

On the financial front, as economist Branko Milanovic has argued, "globalisation is now going on the reverse", as assets are frozen and the property of Russian oligarchs expropriated. Even Switzerland, the most notorious of continental tax haven, has partly abandoned its splendid isolation, freezing some of the assets of Russian billionaires and banks. Also within Russia, the crisis has revealed what is the actual hierarchy between economy and politics. Oligarchs may well be furious at seeing their super-yachts confiscated, but their massive foreign wealth was rapidly sacrificed in the name of raison d’etat. 

By all means, present emergencies cannot be solved by individual nation-states. They require the European Union to step up and become something more similar to an interventionist federal state, rather than simply a fiscal inspector and regulator. The real risk, is that because of lingering commitments to fiscal orthodoxy, the ramping up of defence spending will be accompanied by attempts to put a cap or even cut social spending. That would be a very short-sighted choice, given the evidence of how the 2010s fiscal contraction, and the resulting social pain, have created avenues for the populist right, while damaging social cohesion that is all-important to deal with an emergency situation like the one we are traversing.
 
Ultimately the present turn in public policy, and the acceptance of public spending and greater state interventionism should become a matter of common-sense and bipartisan policy. Classical liberals such as Adam Smith knew that "defence is much more important than opulence", and that also the market cannot be effective if security of all kinds (social, political and now also environmental) is not guaranteed. Neoliberals rashly did away with this wisdom of their predecessors. But with the consequence of making Western societies fragile and their democracy vulnerable to extremism and foreign interference. It is now time to take stock of the hard lessons history is offering us in the battered neighourhoods of Kyiv and Kharkiv, and in the pipelines through which Putin feeds on our energy dependence.